Pay philosophies in the Public Sector: myths and opportunities

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Pay philosophies in the Public Sector: myths and opportunities

The current lobbying for removal of public sector pay caps, together with a likely government response of deferring such decisions to the independent Pay Review Bodies (a.k.a. the great and the good advised by the usual “big 4” suspects), presents a rare opportunity to create pay structures which pass muster in the real-world.

Just 20 short years ago, in the heady days of the formation of “NHS Trusts”, newly emboldened Trust Boards, together with their somewhat trepidatious HR functions, decided that the time might be right to take control of their own pay destinies and create a link between what people did and what they got paid.

The first step on this journey was to understand what people really do in an organisation, and what kind of pay arrangements could then be used to attract, retain and motivate productive people in the context of the local economic situation. As a result, I designed a new job evaluation methodology which quickly and accurately assessed the size of every job using a range of very transparent factors. Over a period of two years, the great majority of NHS trusts installed this system as the first step on their journey towards managing their own payroll costs.

As you would expect, unions were against this, doing everything they could to prevent the spread of localisation. This is not surprising: Unions’ primary philosophy on pay is not to maximise it, but rather to ensure that everyone, irrespective of their performance, gets paid the same.

The early success of the move towards local autonomy caused its undoing: the NHS got cold feet, bought in our software and evaluation system, and soon replaced it with the strangely titled “Agenda for Change”, which persists until today. Much of the ensuing work involved – and one can understand why – was focused on ensuring that jobs were allocated to the right pay grades, in order to head off and defeat an alarming cottage industry of equal pay claims. Grading jobs properly is important: but it is quite different from deciding what each should be paid as a result.

These good intentions went further, and retained the old Whitley Council, Government philosophy which pays people exactly the same, irrespective of where they live and work. The structure provides a national pay spine for each position, meaning that a nurse or other employee on Grade 6 can look forward to guaranteed pay increases of some 34%, (from £26,302 to £35,225) simply for remaining in the same job, moving annually through 9 pay spine points. Location is irrelevant. The full picture can be found here.

The current annual 1% pay cap should therefore be seen in the context that only those at the top of their pay ranges will receive only 1%: the rest are still progressing through their spine points towards the maximum of their grade, each with a welcome and predictable pay increase.

The Pay Review Bodies have an opportunity to make some corrections.

Firstly, they should take a step into the real world and set pay levels according to economic data prevalent in different parts of the UK.

With house prices – and mortgage repayments/rents – differing by a factor of 4 in different locations, how can the same pay scales for all continue to be justified? Having totally localised pay for each hospital or city is a bridge too far, but the UK can be split into 6 to 8 distinct but sensible economic regions for the purpose of setting pay levels. Full Equal Value compliance will be retained.

Secondly, they should use the newly liberated “pay pot” strategically – put the money where mission-critical jobs are at risk, use it to fight high contracting costs (by making it less attractive to work in such a way). In other words, the clever use of sparse resources can be justified if it is applied even-handedly and is properly documented. Like most Europeans, we shy away from obsession with the external “pay market” often seen in North America, but we cannot go on ignoring the need to respond to real business problems – particularly attrition and being held to ransom – and need to react proportionately to real-world situations.

Thirdly, recognise that it does not take 9 years/spine points to become competent in a job. Anyone should have seen most work situations over a 3-year period, so set a limit for progression to just that – 3 years. No other viable industry or business would pay such a vast range for doing the same job; the NHS should be no different. I do not underestimate the change which this entails, but without it, the NHS will carry a heavy burden which fails to link pay with productivity – our country’s greatest business challenge.

None of these ideas are new (there is nothing new in HR, only increasingly expensive technology) but they are all as valid today as they were 20 years ago. It’s time for change.

There are great things going on in the NHS. The recent paper Reward in the NHS is as good as anything I have seen from my healthcare clients in the US or elsewhere; all that is missing is the freedom to address how pay best fits into its local surroundings.

I love the NHS and the principles behind it. Over the years I have dealt with many of its policy groups, “Leadership Development” centres, and others charged with steering this most important of ships. However, reading “NHS Staff from Overseas: Statistics”, produced for the House of Commons Library in April this year, one does wonder why a country of 60 million people can still only produce 75% of the doctors it needs – how did this happen?

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